IBJNews

Revived Marsh Supermarkets goes up for sale

Back to TopCommentsE-mailPrintBookmark and Share

Marsh Supermarkets Inc. is up for sale again.

Florida-based Sun Capital Partners has completed the turnaround it launched after buying the home-grown chain three years ago and is ready to get rewarded for the labor.

CEO Frank Lazaran said there’s no definitive strategy for selling Marsh, but acknowledged Sun’s plan all along has been to improve the company’s performance and then sell it “when the market is right, financing is right, and someone is willing to pay a fair multiple.”

The company has hired Chicago-based investment adviser William Blair & Co. to begin soliciting offers for the company in early 2010, IBJ has learned. The asking price is expected to range between $130 million and $150 million.

Retail observers say the most likely buyer this time around is a grocery company or companies interested in operating the stores—not another private-equity player looking to wring “hidden value” out of a troubled company.

That’s because Marsh is no longer troubled, at least financially. When Sun paid $88 million in cash and assumed $237 million in debt to acquire Marsh in September 2006, the chain was losing money, flirting with default on its debt, and had just dropped to third in Indianapolis market share behind Kroger and Wal-Mart.

With Sun at the helm, Marsh slashed $70 million in overhead, sold $80 million in real estate, and spun off non-grocery businesses, including a caterer, florist and a convenience-store chain.

Marsh used proceeds to pay down debt and plow $60 million into the renovation of 80 percent of its roughly 100 stores.

Three years later, Marsh is lean and profitable, focused solely on the grocery business. The chain remains third in market share, but its balance sheet looks pristine compared to 2006.

The locally based retailer appears to be one of Sun’s successes at a difficult time for the investment firm. Since 2008, at least 11 Sun portfolio companies have filed for bankruptcy, including the retail chain Mervyn’s, catalog retailer Lillian Vernon and power equipment maker Powermate. It also has written off hundreds of millions of dollars of investments in GMAC and Chrysler, and laid off dozens of employees.

None of that has any bearing on Marsh, Lazaran said, and he characterized the challenges as pretty standard for a private-equity firm that specializes in distressed companies and owns about 100 firms at any given time.

“Sun lets us run our businesses,” he said. “They don’t want to run Marsh for us.”

Just a grocer

Under Sun’s ownership, Marsh closed a dozen stores, cut more than 30 percent of a 500-strong headquarters staff, and rebranded most of more than 30 LoBill locations as Marsh Hometown Markets.

It jettisoned Marsh private-label products in favor of the more-profitable Food Club, and canceled a pricey advertising deal with the Indiana Pacers in favor of more store-level control of sponsorship dollars. It cut inventories and sold off all but a few real estate parcels including all the stores it had owned; the chain now leases the store space.

“This company was in trouble,” said Lazaran, 52. “We worked Marsh very hard and I can tell you we’re well-positioned going forward.”

Marsh’s debt now stands at $60 million, down $177 million since the purchase.

Marsh is a pure-play grocer with a strong regional brand, a newly remodeled store base and a distribution network with room to accommodate as many as 50 new locations, Lazaran said.

Marsh is on track to post sales of $1.1 billion this year, Lazaran said, down from the $1.3 billion in grocery sales the company reported in its last year as a public company.

Marsh CEO Frank Lazaran, a veteran grocery executive, has taken a hands-on approach to his turnaround efforts at the ailing supermarket chain. (IBJ Photo/Robin Jerstad)

The company in 2006 reported a loss of $57 million on revenue of $1.7 billion, which included the 154-location Village Pantry chain and other businesses Sun has spun off.

Lazaran said the company is now profitable but he declined to provide specific numbers.

Potential suitors

A sale to a grocery operator would be a relief to current and former Marsh employees who privately worry that Sun’s cutbacks have cheapened the Marsh brand and alienated customers.

The chain most likely will be sold piecemeal, and probably is worth about $1 million per store, said David J. Livingston, a grocery analyst based in Wisconsin.

Marsh hasn’t officially listed itself for sale yet or disclosed financials, but Livingston said he’s heard from several potential suitors, most of which are interested in clusters of stores, not the entire chain. Separate buyers may be interested, for example, in Marsh’s Ohio stores and the Indiana college-town outposts in Bloomington and Lafayette.

Livingston would not name the potential buyers he’s working with, but named a few players with the wherewithal to do a deal: Spartan Stores Inc., a Grand Rapids, Mich.-based distributor that operates about 100 stores; Kentucky-based Houchens Industries Inc., an employee-owned operation that bought the Jasper-based Buehler Foods Inc. in 2008; St. Louis-based Schnucks, a chain of 90 stores; and Pittsburgh-based Giant Eagle, which owns 160 stores.

Larger players that might want a Midwest foothold include Publix Super Markets, an employee-owned giant based in Lakeland, Fla., or the publicly traded Winn-Dixie Stores Inc., based in Jacksonville, Fla., where Lazaran was CEO before he took over at Marsh. Winn-Dixie’s board fired Lazaran in December 2004 after just 18 months on the job.

Another possibility is Cincinnati-based Kroger, which could add to an already-strong store base and take out a competitor in the process, Livingston said. Kroger expressed interest in some of Marsh’s stores before Sun bought the chain in 2006 and likely would be interested again if Sun is willing to sell individual stores, said Kroger spokesman John Elliott.

A purchase of Marsh by an already established local player like Kroger could lead to more store closings and layoffs, but not necessarily. When Kroger in 2007 bought its top rival in Fort Wayne, the 18-store Scott’s Food and Pharmacy, it closed only four locations.

Livingston said Marsh’s reputation as a chronic underperformer will hurt its position with potential buyers.

The chain trails both Wal-Mart and Kroger in Indianapolis market share, despite having more local stores than either one (see graphic).

The discrepancy also shows up in surveys of shoppers. About 46 percent of Indianapolis-area shoppers reported visiting a Marsh store in the prior week, according to this year’s survey by Coral Springs, Fla.-based Scarborough Research. That’s down from 58 percent in 2005. About 64 percent of shoppers said they visited Wal-Mart, and 56 percent visited Kroger.

“When one grocery chain buys another, they don’t want to have to turn it around,” Livingston said. “My concern about Marsh is, they’ve scaled everything back, lost a step or two, declined a little bit. I can’t see anyone wanting to come in and buying the chain and continuing things like they are.”

Lazaran said the chain has been working to build sustainable market share by updating its stores and offerings. The company is now on a five- to seven-year remodeling cycle instead of a seven- to 10-year cycle. Another 10 or so stores will be remodeled in 2010.

“Clearly, we want to drive market share, but we don’t want to go after short-term gains,” he said.

Fierce competition

Competition is fierce in the grocery business everywhere, as discounters like Wal-Mart continue to siphon off customers. But it’s particularly challenging in Indianapolis, a market where smaller players like Aldi, Meijer and Trader Joe’s continue to make inroads.

The experience of Supervalu Inc., an Eden Prairie, Minn.-based chain that’s as large as Kroger, serves as a cautionary tale. Supervalu lost millions on a bid to establish Cub Foods in Indiana, opting to close 11 stores in 2001, including seven in Indianapolis. The chain last year closed its Sunflower Market store in Broad Ripple.

All the competition means there are fewer potential grocery chains in the financial position for acquisitions, said Danny O’Malia, a former Marsh executive.

Many regional players already have joined national chains, and others are in bankruptcy. Bi-Lo, a Mauldin, S.C.-based chain with 215 stores in the Carolinas, Georgia and Tennessee, filed for bankruptcy protection in March. The Syracuse, N.Y.-based parent company of P&C Foods, a 79-store chain in four states, followed suit in November. And the 26-store chain Ukrop’s Super Markets Inc. of Richmond, Va., is up for sale itself.

“It boils down to who’s big enough, strong enough and wants to come to a market that’s been over-stored since Cub Foods got here,” O’Malia said. “They might have a company that’s ripe to buy, but is this the right place to come if I’m, say, Winn-Dixie or Publix?”

If no buyer can be found, Lazaran said, Sun will continue to operate Marsh, looking at opportunities for expansion through acquisitions.

The company has looked at buying other grocery chains but hasn’t found a good fit yet.

“We’re not looking to be stagnant,” Lazaran said. “We’re looking to grow but we have to find the right opportunities.”•

 

ADVERTISEMENT

  • sun and marsh
    Yes Sun cut the fat, but they also stuck it to many of long time employees
  • Bill Marsh Jr
    Bill Marsh Jr is the Store Manager at 79th and Shadeland.
  • Great Avertising & New Stores
    I moved here a couple of years ago and I was initially draw into the stores as their advertising seemed to have a freshness that lacked from Kroger. Our store in Broad Ripple was remodeled recently and it is even more of a joy to go there and shop with my family.
  • Albertson's
    Lindy-Is it worth talking to Justin to see if Albertson's is considering any acquisitions in 2010? We could help for a modest fee....
  • Dianewc7gf
    I think Stanley is saying Don Marsh COULD HAVE done what Sun did and stayed a local company. Sun did what needed done and it will not be a locally-owned company ever again. That's how I read it anyway so you may need to lighten up.
  • Noticable Improvements
    Our local Marsh store (at 71st & Michigan Rd) used to be a Lo Bills store. When I first heard that Marsh was going to be sold, I was apprehensive; however, since Sun capital Partners bought the company, the store has been spruced up without noticeably raising the prices. It's now a Marsh store again, and we no longer feel like second class citizens.
  • Don
    FYI Stanley.....There is no one from the Marsh family that works for Marsh...Sun fired all of them. Next time do your research before you post something!
    • Marsh
      What's up?
    • Why couldn't Don do this?
      Cut the fat, sell some real estate, operate like Sun did, then it would have been profitable,with some local ties....but of course he couldn't do that without letting all his family and good buddies make the horrible decisions they made, year after year. Indiana is better off with a non Marsh Family run company...give Sun credit, they know how to recognize value, and get rid of the fat.

      Post a comment to this story

      COMMENTS POLICY
      We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
       
      You are legally responsible for what you post and your anonymity is not guaranteed.
       
      Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in IBJ editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
       
      No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
       
      We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
       

      Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

      Sponsored by
      ADVERTISEMENT

      facebook - twitter on Facebook & Twitter

      Follow on TwitterFollow IBJ on Facebook:
      Follow on TwitterFollow IBJ's Tweets on these topics:
       
      Subscribe to IBJ
      1. Hello Dear Are you tired of Seeking Loans and Mortgages,have you Been Turned down constantly By your banks and Other Financial Institutions or Micro Finance scheme. This is let you know with 100% guarantee that we Offer loans ranging from $1,000 Minimum to $1,000,000.00 Maximum at 3% interest rate per Month. We give out LOANS for developing business. a competitive edge/business expansion. email address: michealscottloan124@gmail.com We offer the following kinds of loans and many more; * Personal Loans ( Unsecured Loan) * Business Loans ( Unsecured Loan) * Consolidation Loan * Combination Loan * Home Improvement * Xmas Loans for contact to seek for loan email this email address: michealscottloan124@gmail.com Thanks

      2. My name is Mr Henry Josh and i live in the USA California and life is worth living right now for me and my family and all this is because of one man sent by GOD to help me and my family, i once had a life filled with sorrow because my first SON needed a kidney transplant and all our savings were going towards his medications and this normally leaves us with no money to pay our bills or even put enough food on our table and our rent was due and no funds to pay these bills and life felt so unfair to me and every night my wife will cry herself to sleep every night until one day, i was browsing through yahoo answers and i saw a striking advert of a man that gives out personal loans and that the offer is opened to all and i have heard so many things about internet scams but at this point of my life, i was very desperate and ready to take any risk and at the end of the day, i applied for this loan and from one step to another, i got my loan within 12 hours through bank transfer and you know, it was all like a dream and i called Mr Daniel Jones A Man who is the GOD sent lender i found and said, i have received my loan and he smiled stating that to GOD be the glory and i was so shocked as i have never ever seen anyone with such a GOD fearing and kind heart and today, i am the happiest man on earth because by GOD’S grace, my SON kidney transplant was successful and today he is healthy, i and my family are living very comfortable and happy and if you are in my former situation or in serious and legitimate need of a loan, you can reach this GOD sent lender via fidelityloanfirm@outlook.com

      3. Greetings to everyone reading this comment!!! I am Greg William by name. I am out here to recommend the effort of Mark Oscar,I was in need of a consolidation loan amount of 50,000 and as soon as I got in contact with Mark Oscar Loan Firm on Wednesday last week and on Friday last week as well I receive an alert from my bank(Royal Bank of Scotland Group) that the fund was transferred,I want everybody on this site to contact Mark Oscar now via email on how to get a loan because I got my loan from them and I am very happy,so contact them now. Oscarloanfinance@hotmail.com Thanks!!!!!!

      4. Elected officials, like Mourdock, get vested in 8 years. It takes 10 years for all other public employees, most of whom make a lot less money. So much for the promise to finish out his term.

      5. Great state treasurer and a good man!! Just curious if the folks who didn't quite understand his quote would like to tell my daughter-in-law that God didn't intend her! Mourdock's comment was correct but twisted and the article didn't mention that his opponent and the press let the impression stand that Mourdock meant that the rape was intended. Stupid people!!

      ADVERTISEMENT